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3. Binary Options 101

Market Analysis For Binary Options

Remember back when you enrolled yourself into the School of Pipsology, we talked about “The Big Three” types of market analysis. In case you forgot, they are:

  1. Fundamental Analysis
  2. Technical Analysis
  3. Sentiment Analysis

Why are we bringing this up again? Well, the good news is that these building blocks of analysis can also be used when trading binary options!

Fundamental Analysis

Trading the News

One way to make use of fundamental analysis would be to go with a trade-the-news strategy.If you’ve gone through our lesson on this trading strategy, you would know that this is best applied to those events that usually cause a ton of volatility. The spike in volatility tends to lead to fast moves which can send price rocketing higher or plunging lower.

For binary options, this can be particularly effective when you trade simple Up/Down options.

After all, you would simply need to get an idea how price may react to better/worse than expected data and how strong the reaction may be. You just have to be confident that price can reach the strike price of the option that you bought.

For example, you plan to trade the Australian retail sales report. Let’s say you have a bullish bias on the results.

Chances are that a better-than-expected result will spur the Aussie to new highs, so you would look to buy a “call” option on AUD/USD.

AUD/USD Before

Now let’s say that, as you expected, we saw a better-than-expected result. Luckily, AUD/USD also rose, rising above the strike price. Paycheck time, baby!

AUD/USD After

Of course, there are a couple of factors to take into consideration when playing the news.

First is the potential for volatility. When playing a news report and buying a binary option, you have to be fairly confident that the event will spark enough volatility so that price can reach the strike price and stay above/below that level.

If you try trading a report that rarely causes a ripple, you’ll be throwing money down the drain.

Second, you have to factor in the time component of binary options.Remember, for the simple Up/Down options, price has to be above or below the strike price at the expiration date.

When trading binary options and implementing a trade-the-news strategy, you may also want to consider going with one-touch options since price would only have to touch and not necessarily close at a particular level.

You can also try the Out of Range options if you expect the price to move with strong momentum away from its previous range.

With this option you don’t have to pick a direction, just decide whether or not the market will move big time in one direction or another.

Technical Analysis

Love using those fancy-schmancy indicators like moving averages, Bollinger bands, and Stochastic?

Don’t be afraid to slap these indicators on your trading charts when you plan to trade binary options!Remember, these indicators help you gauge where price action may be headed next.

These are used across all sorts of trading markets and not just spot currencies.

Just make sure you have a good understanding of how each indicator works before incorporating it into your analysis.

Studying technical levels and inflection points may also prove helpful when you trade binary options.

Let’s take a look at this example on GBP/USD.

GBP/USD Before

Price has just broken down from a double top.

With this behavioral pattern, price normally continues to trade lower at a distance equivalent to the height of the double top.

Binary Option: GBP/USD After

One way you could play this is by taking a One-Touch trade.

If the strike price that your broker offers is somewhere between 1.5450-1.5550, which is within the height of the double top, buying a “put” option might be a setup worth considering.

Sentiment Analysis

Sentiment analysis is the task of measuring the market’s current “feeling” with regards to broad risk flows.

Are traders confident in buying up risky assets or would they rather reduce risk by buying safe-haven assets or going into cash? This type of analysis will prove to be particularly useful when trying to hop on trends.

Will EUR/USD break for new highs? Or do you think the trend is overdone and there’s not enough momentum? You can use sentiment analysis to gauge how the market is feeling.If it seems that risk appetite is still at a high with no potential changes to the market themes in sight, then the chances are we could see the trend continue.

If you’re fairly confident that market sentiment will favor a risk-on environment, you could consider purchasing a “call” option on a risk currency or asset (e.g., Australian or New Zealand Dollar, Equities, Commodities, etc.)

On the flip side, if you think a reversal in sentiment is in play and depending on how overdone you believe the move is, you could consider purchasing a “put” option on those same risk currencies or assets.

Combination

Just as in spot forex trading, it’s not necessarily a case of choosing which type of analysis you’re going to use because they’re not mutually exclusive.

In fact, you can combine all of these types of analysis to form the basis of any trade that you take.

Fundamentals can help give you a bias as to what direction you want to take, while technical analysis will help determine the chances of the market reaching, breaking and finding support/resistance at a certain price.

Meanwhile, sentiment analysis may let you know whether the market is in a risk-on or risk-off mood.

In the end, the key is for you to learn from all your mistakes and gain experience. Over time, this process will help you fine tune your analysis and help you develop good trading practices.

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3. Binary Options 101

3 Types Of Binary Options

The main factor when talking about payouts is the type of binary option traded.

The option trade example given in the previous section is a type of an “up/down” option and is considered the simplest kind.

Predicting if a currency pair would be above or below the strike price before it expires pays the lowest return.This averages between 70%-90% depending on your broker.

Meanwhile, there are more complicated kinds of options like the “touch and range” binary options, which have higher payouts since winning such trades tends to be harder.From what we’ve gathered, brokers usually offer payouts around 200%-400% and a few can even go as high at 750%!

Up/Down Options

An Up/Down option can go by a few different names: High/Low, Above/Below, and Over/Under. It is the simplest and most common type of binary option.

Traders simply purchase a “call” option if they believe that the closing price will be above the strike price when the contract expires, or buy a “put” option if they think that market will close below the strike price at expiration.

The EUR/USD trade example given in the previous section illustrates how an Up/Down option typically works.

Easy enough, eh? The simplicity of this option is why Up/Down options usually have the lowest payouts.

Up/Down options typically expire within an hour or a day, but some brokers are offering options that expire in minutes. Heck, some even expire in seconds!

Of course, this could either do your account a lot of good or it can cause a whole lot of damage. Make sure you manage your risk properly!

Touch Options

One Touch option trades don’t require the market to be above or below a certain level at expiration. Instead, it just needs to TOUCH the strike price at least once during the option contract period for it to be profitable.

No-Touch trades, on the other hand, require that the market price DOES NOT TOUCH the strike price during the life of the contract for a trader to make profits.Touch trades are offered during certain times of the day, and some brokers offer touch trades during weekends that usually offer higher payouts (around 250%-400% of your risk premium) than a simple Up/Down option trade.

For example, let’s say that EUR/USD closed at 1.3100 on Friday.

Over the weekend your broker offers a call option where you will profit if EUR/USD touches 1.3450 at least once next week and a put option where you will profit if the pair touches 1.2750 at least once in the same period.

You decide to take the call option. You find that during the option period EUR/USD had reached a high of 1.3600 before it closed at 1.3050.

Since the market reached the call option’s strike price (1.3450) within the option period, you would have won the trade even if it didn’t close above the level.

On the contrary, those who took a No-Touch option on the same price would have lost their trades since the pair DID touch the strike price.

Touch trades typically work out well when volatility picks up while no-touch trades are ideal for pairs that have a tendency to consolidate.

Still not exciting enough for ya?

You can also try out Double Touch/Double No-Touch options!

They are just like Touch/No-Touch options, only with two strike prices. The asset’s price has to touch (or not touch) two different levels for a trader to win the trade.

Range Options

Trading Range/Boundary/Tunnel options is a lot like playing the Super Mario underwater level wherein Mario cannot touch both the top and the bottom of the screen.

For In Range trades, the market price must stay within a predetermined range and avoid touching the two strike prices within the option period in order for your trade to be in-the-money.

Some brokers offer Out of Range options where traders can profit if price breaks out of the predetermined range within the option period.

For example, EUR/USD is currently trading at 1.3300 and the ECB interest rate decision is minutes away.Your broker is offering a range option between 1.3280 and 1.3320 that expires in one hour. You think that the ECB’s decision is a non-event so you bought an “in-range” option.

If price doesn’t reach 1.3280 or 1.3320 within the option period, then you would have won your trade.

That should be awesome news for you because range options usually have the highest payouts with a few brokers offering between 200%-750%!

Range options are best used when volatility is low, although some brokers offer the option to take a risk on the idea that price WILL break out of the predetermined range.

Alternatively, a few brokers also offer options on predetermined ranges that are far from the current market price.

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3. Binary Options 101

How To Make Money Trading Binary Options

Now that we have a basic idea on how binary option trades work, let’s take a look at a simple example.

Let’s say, you decide to trade EUR/USD with the assumption that price will rise.The pair’s current price is 1.3000, and you believe that after one hour, EUR/USD will be higher than that level.

You then look at your trading platform and see that the broker’s payout is 79% on a one hour option contract with a target strike of 1.3000.

After much deliberation, you finally decide to buy a “call” (or “up”) option and risk a $100.00 premium.

You could say it’s similar to going “long” on EUR/USD on the spot forex market.

ENDING SCENARIOS AFTER ENTERING A CALL OPTIONGAIN/LOSS
Expiry price is above the strike price
(in-the-money)
$100.00 x 79% = $79
$100.00 + $79.00 = $179.00
You gain $179.00 on your account.
Expiry price is equal to or below the strike price
(out-of-the-money)
You lose your stake and your account declines by $100.00.

As you can see from the calculations above, the risk you take is limited to the premium paid on the option.You cannot lose more than your stake. Unlike in spot forex trading, where your losses can get bigger the further the trade goes against you (which is why using stops are crucial), the risk in binary options trading is absolutely limited.

Payouts in Binary Options

Now that we’ve looked at the mechanics of a simple binary trade, we think it’s high time for you to learn how payouts are calculated.

More often than not, the payout will be determined by the size of your capital at risk per trade, whether you’re in- or out-of-the-money when the trade is closed, the type of option trade, and your broker’s commission rate.

In the example given above, you bet $100 that EUR/USD will close above 1.3000 after an hour with your broker offering a 79% payout rate. Let’s say that your analysis was spot on and your trade ends up being in-the-money. You would then get a payout of $179.

$100 (your initial investment) + $79 (79% of your initial capital) = $179

Easy peasy, right? Don’t get too excited just yet! You should know that there’s no one-size-fits-all formula for calculating payouts. There are a few other factors that affect them.

Factors in Payout Calculations

Each broker has its own payout rate. For starters, Forex Ninja’s intel shows that most brokers offer somewhere between 70% and 75% for the most basic option plays while there are those who offer as low at 65%.

Various factors come into play when determining the percentage payout.

The underlying asset traded and the time to expiration are a couple of big components to the equation.Normally, a market that is relatively less volatile and an expiration time that is longer usually means a lower percentage payout.

Next, the broker’s “commission” is also factored into the payout rate. After all, brokers are providing a service for you, the trader, to play out your ideas in the market so they should be compensated for it.

The commission rate does vary widely among brokers, but since there are so many binary options brokers out there (and more coming along), the rates should become increasingly competitive over time.

When a Binary Option Trade is Closed

As mentioned before, binary options are typically “all-or-nothing” trading instruments in that the payout or loss is only given at contract expiration, but there are a few brokers that allow you to close a binary option trade ahead of expiration.

This usually depends on the type of option, and usually it’s only available within a certain timeframe (e.g., available 5 minutes after an option trade opens, up until 5 minutes before an option expiration).The trade-off for this flexible feature is that brokers who do allow early trade closure tend to have lower payout rates.

When trading with a binary option broker that allows early closure of an option trade, the value of the option tends to move along with the value of the underlying asset.

For example, with a “put” (or “down”) option play, the value of the option contract increases as the market moves below the target (strike) price.

This means that, depending on how far it has moved passed the strike, the closing value of the option may be more than the risk premium paid (but never greater than the agreed maximum payout).

Binary Put Option Risk Graph

Conversely, if the underlying market moved higher, further out-of-the-money, the value of the option contract decreases and the option buyer would be returned much less than the premium paid if he/she closed early.

Of course, in both cases, the broker commission is factored into the payout of an option trade when closed early.

So before you decide to jump head first into trading binary options, make sure you do your research and find out what your broker’s payout rates and conditions are!

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3. Binary Options 101

What Are Binary Options?

Don’t be intimidated! Its name may sound complicated, but binary options are arguably a simpler way to trade than traditional options or currencies.

Just like traditional options, binary options have a premium, a strike price, and an expiration.The difference is that, with binary options, the “premium” amount for the option is chosen by the trader (usually determined by the market with traditional options) and the expiration timeframes are much shorter.

Traditional options have an expiration range of a week to a couple of years, while binary options have an expiration range of less than a minute to a few days.These variations bring about the biggest difference, which is how a profitable trade is calculated.

But before we cover the ka-ching ka-ching, let’s take a look at how binary option trades work.

With a binary option trade, the broker will pay out a percentage of the premium at risk if the conditions of the contract are met (e.g., the market price is at or beyond your target strike at expiration with a call option).Basically, you receive a predetermined fixed profit, regardless of how far the market moves beyond the strike price or met the conditions of the contract.

Whether it’s by 1 pip or 1,000 pips, it’s the same profit payout at contract expiration; there is no middle ground. This is why binary options are also known as “all-or-nothing” options.

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3. Binary Options 101

What Are Options?

Before we dive into binary options, it’s important to get a basic understanding of what options are and how they work.

Traditionally, an “option” contract gives the holder the right to buy or sell an asset at a predetermined price within a certain period of time (or by an expiration date).Note that the holder is not obligated to buy or sell at the predetermined price, he merely has the option to do so if he wishes to. That’s why they’re called options, yo!

There are two kinds of options:

  1. Calls
  2. Puts

And for this brief overview, we’ll only quickly cover the mechanics of option buying.

What is a Call Option?

CALL option allows an investor to BUY the underlying asset at a predetermined price, dubbed the “strike price.”If an investor expects the underlying asset to rise above the strike price before the contract expires, he would purchase a call option.

Call Option

What is a Put Option?

On the other hand, purchasing a PUT option gives the buyer the right to SELL an asset at their chosen strike price. So, if he thinks the market price of an asset will drop below the strike price before the contract expires, he would buy a put option.

Put Option

The purchase price of an option is also called the “premium” and when buying options, the premium is the most you will risk or can possibly lose.

So the profit from an option trade is the amount the market has gone beyond the strike price minus the premium at the contract expiration.For example, let’s say you want to buy a piece of land that is currently worth $100,000.

You think it will rise in value by another $30,000 one year from now, but you don’t want to tie up $100,000 for a year in that investment.

The seller of the land offers to sell an option contract to you to purchase the land for $100,000 (strike price) one year from now.

The seller offers the contract at a $5,000 premium. You agree, pay the $5,000 to the seller for the contract and wait to see if the value rises.

Let’s say in one year, the land value increases to $130,000. You decide to exercise your right to purchase the land at the agreed price (the strike), pay the owner the $100,000 contract price and now you own the land.

Your profit on the land is the current value, $130,000, minus the purchase price (strike) plus the contract premium: $130,000 – ($100,000 + $5,000) = $25,000.Alternatively, let’s say that in one year, the land falls in value to $80,000. You are not obligated to exercise the contract and you obviously decide not to buy the land because it has fallen in value.

Your only loss is the premium paid ($5,000) to the option seller. As you can see, options are a great alternative to play your market ideas with very limited risk.

Now that you have a basic idea of how options work, we can now take a look at binary options.

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2. Forex Trading Scams

How To Protect Yourself From Forex Scams

So what have we learned?

Scams ARE real!

Yes! Really bad people are out there trying to make a dishonest living. However, unlucky for them, you are smart!You know that the only way to succeed in currency trading is to learn from square one and build trading experience!

Now say this three times out loud:

“I will not fall for no-risk robots! I will not succumb to guaranteed returns! Lastly, I will not be lazy and let someone else trade me lucky charms *cough* I mean my money for me!”

Now that we have that over with, let’s close out with some questions our viewers have asked us countless times!

Forex Scams

Q: How can I protect myself from fraud?

A: Easy. Be educated. Be smart. Know what a scam looks like. Anything that seems too good to be true usually really isn’t true.

Q: How do I choose a forex broker?

A: First and foremost, make sure the broker is regulated by a national agency. DYOR. Research, research, and do more research!

Q: Can forex managed accounts be trusted?

A: If your forex manager is yourself, yes! If not, I’d exercise extreme caution. But if you’re persistent and want to find out the hard way, do a background check and make sure the person has proper licenses and certifications.

You should find out if the person’s forex activities are regulated and by whom. If the person is not regulated, you may be exposed to additional risks.

Q: Are forex robots profitable?

A: It’s possible, but because they’re usually built for a specific set of conditions, their profitability, and how long it may be profitable depends on the market.Like human traders, they can go on long profitable runs, have a long string of losing trades in a row, or see-saw somewhere in-between.

If you take anything away from the school about them, just don’t think they’re a “set-and-forget” solution to trading; they must be monitored closely as well.

Q: Who do I contact if I suspect fraud?

A: There are specific organizations depending on your location.

United States:

CFTC: http://www.cftc.gov/ConsumerProtection/RedressReparations/index.htm

NFA: http://www.nfa.futures.org/basicnet/Complaint.aspx

United Kingdom:

FCA: How to complain

ActionFraud – the UK’s national fraud and Internet crime reporting center: http://www.actionfraud.police.uk/

Australia:

ASIC: How to complain

Scamwatch: http://www.scamwatch.gov.au/content/index.phtml/tag/reportascam#h2_10

Cyprus:

CySEC: How to complain

Singapore:

MAS: How to complain

You can find a comprehensive list of regulatory organizations for different countries here.

Q: Where can I capture me a leprechaun?

A: Look for a unicorn. Where you’ll find a unicorn, you’ll find a leprechaun!

So remember, forex scams DO exist.

Be wary of them and hold onto your hard-earned money.The good news is that there ARE legitimate forex companies out there.

Make sure you do thorough research on a company if you are thinking about giving them a shot.

Ask other forex traders on the forums if they’ve had experiences with them.

There is a wealth of information on the Internet so do your homework, use your head, and you’ll be just fine.

Categories
2. Forex Trading Scams

Foreign Regulatory Agencies

UK: The FCA and PRA

If you live in the U.K., the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are for you!

On April 1, 2013, both of these agencies replaced the Financial Services Authority (FSA) as the financial industry’s regulatory bodies.The Financial Conduct Authority is a non-government agency funded by the firms they regulate, and they are accountable to a Board appointed by the Treasury.

Their goal is to protect consumers, ensure industry stability, and promote healthy competition in the financial services industry through the regulation of financial advisers, asset managers, or any firm not covered by the PRA.

FCA website: http://www.fca.org.ukThe Prudential Regulation Authority is a part of the Bank of England, and their main role is to promote a healthy UK financial system through the regulation and supervision of banks, credit unions, major investment firms, and insurers.

PRA website: http://www.bankofengland.co.uk/pra

Denmark: Finanstilsynet

The Danish FSA was formed in January 1988 and was charged with supervising financial activities in Denmark. Members of the FSA are monitored in an attempt to protect investors and prevent market abuse.

Finanstilsynet’s website: http://www.dfsa.dk/en.aspx

Switzerland: Swiss Federal Department of Finance

The Federal Department of Finance or FDF was formed in 1848. While the FDF is the overseer of financials in Switzerland, it is the Swiss Financial Market Supervisory Authority or FINMA that regulates the banks, securities dealers, and stock exchanges.

FINMA acts like the big brother in Switzerland and does pretty much the same as the other regulatory agencies.

FDF’s website: http://www.efd.admin.ch/index.html?lang=en

FINMA’s website: http://www.finma.ch/e/Pages/default.aspx

Switzerland: Association Romande des intermediares financiers

This organization is similar to FINMA in that they are both from Switzerland, but this body is based on the French-speaking part of Switzerland. ARIF was formed in 1999. It too acts as a regulatory agency with members abiding by certain rules and laws.

ARIF’s website: http://www.arif.ch/en/index.htm

Hong Kong Securities and Futures Commission

The Hong Kong Securities and Futures Commission (SFC) was formed in May 1989 due to ineffective efforts of two regulating bodies. With a combined single organization, the SFC took charge. It monitors all futures and securities-related activities in Hong Kong.

SFC’s website: http://www.sfc.hk/sfc/html/EN/index.html

Australian Securities and Investments Commission

Founded in 1991, the Australian Securities and Investments Commission (ASIC) acts as a corporate regulator in Australia. ASIC regulates companies, financial markets, and financial service organizations as well as insurance, and credit.

The organization aims to maintain fairness in the market environment.

ASIC’s website: http://www.asic.gov.au/asic/asic.nsf

Categories
2. Forex Trading Scams

U.S. Regulatory Agencies

Despite the forex market being the largest financial market in the world, it remains largely unregulated.

There is no international organization or global agency that monitors and oversees the currency trading occurring all over the world in the interbank.Due to the unregulated nature of the spot FX market, this opens up the opportunity for forex scams and frauds.

While there is no international organization to protect forex traders like there is S.H.I.E.L.D. to protect the world, there are countries that monitor and oversee forex trading activity, including forex brokers, that occur within their borders.If you are trading forex in the United States, there are two major regulatory agencies that you should be aware of.

Commodities Futures Trade Commission (CFTC)

In the United States, we like to call the CFTC… Big Brother.

CFTCThis agency was developed in 1974 to protect individuals in futures and commodities trading.

Since futures include the currency market, the CFTC “naturally” protects forex traders as well.

From 1974 to the present, the CFTC has undergone many changes in hopes of improving trading conditions and creating a level playing field for everyone. The CFTC is also responsible for publishing the Commitments of Traders Report (COT) every Friday (the CFTC receives data from reporting firms on Wednesday, which it corrects and verifies for release on Friday).

Five commissioners appointed by the President, the offices of the Chairman, and the agency’s operating units make up the Commission. The Commission has 3 offices along with HQ located in Washington, D.C. – Chicago, Kansas City, New York.

Futures exchanges are also located in these cities. So if you have a problem with them, you can make your way over there and bust out your uzis and spray them. Just kidding. Don’t do that – they’re the good guys. They’re here to help you.

Imagine if there was no organization out there to protect you. There would be a lot more scammers, and brokers would cheat their clients in a heartbeat. The CFTC provides order in a market that would otherwise be chaotic.

The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options. In the “unregulated” forex market, this regulatory agency will help you determine if a forex company is reliable or trustworthy.

The CFTC’s Website can be found here:

If you need to file a complaint or report suspicious activities:

National Futures Association (NFA)

The NFA is an industry-wide self-propelling organization created in 1982 that regulates the futures market in the United States.

By self-propelling, we mean that the NFA collects dues in order to sustain itself without having to rely on taxpayers’ dollars.

If the CFTC is Big Brother, then we like to call the NFA….Little Big Brother. NFA’s activities are overseen by the Commodity Futures Trading Commission (CFTC), the government agency responsible for regulating the U.S. futures industry.

The NFA’s mission is to:

  • Ensure futures industry integrity
  • Protect market participants
  • Enforce NFA members to meet their regulatory responsibilities

Virtually every firm or individual who conducts futures or options on futures business with the public must be registered with the CFTC and a Member of NFA. NFA performs the registration process on behalf of the CFTC.

NFA Member categories include Commodity Trading Advisors (CTA), Commodity Pool Operators (CPO), Futures Commission Merchants (FCM) and Introducing Brokers (IB).

In order to conduct any business in the futures market, you would have to be a member of the NFA. To be a member of the NFA, an organization would have to pass a screening done by the NFA and comply with NFA standards and regulations.

These rules and regulations provide market integrity and a level playing field for all, and not just for investors.Over time, they have been making significant progress. In order to resolve futures-related issues, the NFA began an arbitration method in 1983. In 1991, a mediation program was developed as a faster way to resolve disputes.

In late 2001, the NFA started to accept claims online. Members could also start registering online in 2002.

In 2004, the NFA started to submit digital images of fingerprint cards to the FBI enabling quicker background checks and shorter registration times. What an active organization! This goes to show that they keep up with the times. Who knows, they might just make their own iPad app. Ha!

Along with the CFTC, the NFA provides investors and individuals with security and protection from fraud and scams.

The NFA’s website can be found at http://www.nfa.futures.org/index.asp.

How can I learn more about the forex broker with whom I am trading?

In the U.S.,  only regulated entities, such as banks, insurance companies, broker-dealers or futures commission merchants, and affiliates of regulated entities may enter into off-exchange forex trades with retail customers.

You can verify CFTC registration and NFA membership status of a particular firm or individual and check their disciplinary history by calling NFA at 800-621-3570 or by checking the broker/firm information section (BASIC) of NFA’s website.

BASIC is a free tool that you can use to research the background of forex brokers doing business in the United States.

If you live outside the U.S., make sure to ask the forex broker how it is regulated and check with its regulator about the specific broker’s registration status and background.

What should I do if I have a problem with my forex account?

Disagreements are bound to occur from time to time in any industry.

Your first step should be to contact the firm you have a disagreement with and try to reach a settlement.

Both the CFTC and NFA offer programs that may be available for resolving monetary disputes involving your forex account.

Whether NFA or the CFTC can accept your case depends on several factors, however, including the party your claim is against.

How to File a Claim if You Believe You’ve Lost Money Due to Unfair or Improper Treatment by an NFA Member

NFA offers an arbitration program to help customers and NFA Members resolve disputes. Information about NFA’s arbitration program is available by calling NFA at 800-621-3570 or visiting the Dispute Resolution section of its Web site at www.nfa.futures.org.

How to File a Claim if You Have a Dispute That Can’t Be Resolved with a CFTC Registered Firm

The CFTC offers a reparation program for resolving disputes. If you want information about filing a CFTC reparations complaint, contact the CFTC’s Office of Proceedings at 202-418-5250 or visit the CFTC’s website.

How to File a Complaint or Report Suspicious Business Practices

In addition, if you suspect any wrongdoing or improper business conduct in your forex account, you may contact or file a complaint with NFA by telephone at 800-621-3570 or online at www.nfa.futures.org/basicnet/Complaint.aspx.

You may also file a complaint with the CFTC. The CFTC has prepared a questionnaire form to assist the public in reporting suspicious activities or transactions.

The questionnaire form is available on the CFTC’s Web site at http://www.cftc.gov/enf/enfform.htm

Categories
2. Forex Trading Scams

Forex Broker Scams

Watch out for forex broker scams!

Believe it or not, there are some brokers who “cheat” their clients.

One way they do so is by manipulating bid/ask spreads.Normal spreads between brokers would be around 2-3 pips but scammers would have spreads around 7-8 pips.

Seven pips might not seem like a lot, but it does add up.

Imagine each time a client trades, he has to pay a spread of 7 pips. Imagine if he takes a just a few trades per day.

Forex Broker Scams

Multiply that by hundreds or even thousands of other clueless clients, you’d be rakin’ in the dough!

Another way is by stop hunting.

Remember, brokers know where clients place their stops.

Sometimes, they’ll make a run for those stops, causing their clients’ positions to close out.

Fortunately, many, but not all, broker shenanigans are considered old school.

Thanks to new rules from regulatory agencies such as the Commodities Futures Trading Commission and the National Futures Association, these old scams have been cracked down upon.You should choose a forex broker that is registered with a regulatory agency.

In the U.S., check out brokers registered as a Futures Commission Merchant (FCM) with the CFTC and an NFA member. Be wary of those brokers that are not regulated by the CFTC and the NFA.

You should know that the CFTC and NFA were made to protect the public against fraud, manipulation, and abusive trade practices.

Be careful, it’s often difficult to distinguish between regulated and unregulated forex brokers!

You can verify CFTC registration and NFA membership status of a particular broker and check their disciplinary history by phoning NFA at (800) 621-3570 or by checking the broker/firm information section (BASIC) at the NFA’s website!If you’re trading forex outside the US, you’re in luck! Other countries have regulatory agencies as well and protect individuals as well. More will be mentioned about them later.

If the broker in question is not registered or regulated by any national agency, then DO NOT deposit your money with them. We warned ya, so don’t complain to us if you don’t get your money back!

Stay away from non-regulated firms!

Also, don’t be shy to also ask around in our forex forums. It doesn’t hurt to get personal opinions.

Categories
2. Forex Trading Scams

Forex Signals

Forex signal services do everything a robot does except the actual execution of trade entries.

Besides possibly using an automated program, a “professional” trader may generate trading signals (for a fee, of course) for clients to act upon.

However, you may be paying for a signal in which you do not know the causes for and how the “professional” came up with it.

You have no idea what the basis for the trade is, just that the “professional” is telling you that it’s a good time to buy or sell.

In the end, you are relying on the analysis of a third-party source that is NOT your own.

In a typical forex signal service, the programmer creates a set of technical indicators and rules and the program runs to those specifications.If price action satisfies the conditions of the signal service, then some kind of notification or alert via email or text message will be sent to the user to react.

It is ultimately up to the user to decide whether or not to take the signal and trade it.

While this may sound more beneficial as you have a choice on whether or not to take a trade, the signal service is still programmed to a constant set of rules.Like we mentioned earlier, the forex market is in a constant state of change.

While the forex signal service might have been profitable in the past, there is no guarantee that it will be profitable in the future.

One other thing to think about is if the forex signal service is so profitable, why would the creator want to share the profit?

Like forex robots, the scam isn’t the service itself, but the way it’s marketed.

You may see ads from scammers that promise you’ll make a bajillion dollars with their signals.

Many traders will look at the ad and think, “A bajillion dollars!? I could do anything I want with a bajillion dollars!”

Now stop. Think about it.  Massage your lip or chin.  Think.

If that were true, why even run a forex signals business in the first place? Instead, they should be focusing on trading with their signals and making a bajillion dollars for themselves.